Financial stocks slide as AI worries and a flattening yield curve weigh on banks

On Tuesday the S&P 500 financial sector lost 2% while the broader bank index dropped 3% as market participants reacted to growing anxiety over artificial-intelligence competition and bond-market signals. Shares of Charles Schwab, Ameriprise Financial and Raymond James led the declines, falling 6.1%, 4.4% and over 3% respectively. Gabelli Funds' portfolio manager Macrae Sykes pointed to Meta Platforms' Muse app surpassing ChatGPT in iPhone downloads as a catalyst for potential AI disruption in wealth management.

He also cited the flattening of the two- to 10-year Treasury yield spread, which hit its narrowest level since March 2025, as a factor that could erode bank profitability. Additionally, Sykes referenced recent delays in AI-related IPOs, including SB Energy's postponed roadshow and Holtec's suspension of its offering. Nevertheless, he maintained confidence in the sector’s fundamentals, citing a strong economy and solid employment as supportive of banks' long-term prospects.